M&A in Myanmar18th May, 2017

OVERVIEW

� Not much high-profile activity; M&A transactions are

usually on a smaller scale

� High-profile deals: Usually, not M&A, but greenfield

investments, either 100% foreign-owned, or JVinvestments, either 100% foreign-owned, or JV

� High-profile M&A deals:

� Colgate buying Laser-Brand Toothpaste in 2014

� Kirin buying 55% of Myanmar Brewery in 2015

� Axiata buying Digicel Myanmar Tower Co., Ltd. (edotco

Myanmar) in 2015 and 2016

MARKET ACCESS RESTRICTIONS

� Currently, market access restrictions are laid down in MIC

Notification 15/2017

� Investors seeking to get a foot in restricted sectors try

various methods centering around the idea that they various methods centering around the idea that they

would extend a loan to an existing player which would

later be converted into shares of that player

� In the end, we are not aware that any of these schemes

would ever have played out as intended in Myanmar, so

they are outside the scope of this presentation

ACQUISITION STRUCTURE

� Purchase of shares (or subscription to new shares) in a

foreign holding company

� Purchase of shares (or subscription to new shares) in a

foreign-invested company registered in Myanmarforeign-invested company registered in Myanmar

� Purchase of shares (or subscription to new shares) in a

100% Myanmar-owned company

� Purchase of assets from a company registered in Myanmar

� Purchase of shares in a nominee structure (please see the

following slides for a clear warning)

ACQUISITION STRUCTURE

� Purchase of shares (or subscription to new shares) in a

foreign holding company

� Technically, easy

� If project has MIC permit, change of control requires � If project has MIC permit, change of control requires

prior MIC approval (Rule 191)

� Authorities having issued licenses should be consulted

� Does Myanmar capital gains tax apply to a sale of

shares in the holding company? (“Vodafone scenario”)

ACQUISITION STRUCTURE

� Purchase of shares in a foreign-invested company

registered in Myanmar

� Technically, easy: Cover letter, BoD resolution, share

transfer formtransfer form

� If project has MIC permit, prior MIC approval required

(formerly, application form 7 or 8)

� With MIC endorsement?

� Special procedures if project has licenses

ACQUISITION STRUCTURE

� If target is JVCo: Foreigner cannot purchase shares of

local JV partner if such share purchase would result in

passing the threshold of foreign ownership restrictions

� Stamp duty 0.1% � Stamp duty 0.1%

� Capital gains tax 10% (upstream oil and gas: 40-50%)

� No commercial tax

� Capital increase and subscription to new shares also

possible

ACQUISITION STRUCTURE

� Purchase of shares (or subscription to new shares) in a

100% Myanmar-owned company

� Not possible if the target company owns land or

engages in business that is prohibited to foreignersengages in business that is prohibited to foreigners

� Old Citizens Investment Law explicitly allowed citizens

to sell shares in local companies with MIC permit

� Share transfer theoretically possible, BUT: target

company is converted into a “foreign company” (“FC”)

with a new company number

ACQUISITION STRUCTURE

� This means: The converted company is a new, separate

company - existing contracts have to be signed anew,

existing licenses have to be obtained anew…

ACQUISITION STRUCTURE

� Purchase of assets from a company registered in Myanmar

� Advantage of an asset deal over a share deal: Liabilities

of the target are not passed on to the buyer

(exception: corporate income and commercial tax (exception: corporate income and commercial tax

liabilities of the preceding year)

� Disadvantage: Contracts and licenses are also not

automatically passed on

ACQUISITION STRUCTURE

� Typical scenario: establishment of a JV, rather than

taking over all assets

� Taking over land: can only be done through a lease

(Example: Local JV partner with land concludes lease (Example: Local JV partner with land concludes lease

agreement with JV company. JV company pays the

rent up-front with newly issued shares instead of cash.

Land remains the property of the JV partner and does

not become the property of the JV company)

ACQUISITION STRUCTURE

� Capital gains tax (+); commercial tax (+); stamp duty (+)

ACQUISITION STRUCTURE

� Acquiring shares in a nominee structure

� The principal in a nominee structure cannot transfer

ownership of the business to a potential buyer (sounds

simple, but some potential buyers close their eyes simple, but some potential buyers close their eyes

before this fact)

� Assignment of a convertible loan: Untested, at best

STEPS IN AN M&A DEAL

� Target selection

� Memorandum of understanding

� Non-disclosure agreement

� Due diligence� Due diligence

� Valuation and pricing

� Sale and purchase agreement

� Payment and transfer of ownership

DD OF A MILITARY

CONGLOMERATE

(Remark: The following summarizes experiences up to 2014;

the situation may be different now)

� Regulatory framework

� Financial statements� Financial statements

� Corporate set-up

� Licenses and their renewals

� Lease agreements, land grants

� Agreements with private contractors

� American sanctions

DD OF A MANUFACTURER

� Land due diligence

� Corporate due diligence

� MIC compliance

� Has the operation of the factory so far been lawful?� Has the operation of the factory so far been lawful?

� Licenses in addition to MIC permit: Business license

from YCDC; registration certificate of industrial

business from Ministry of Industry

� Insurance?

� Salary WHT? Social security contributions?

DD OF A MANUFACTURER

� Foreigners: Visa? Registration?

� Employment contracts registered with Township

Labour Office?

� Relationship with customers� Relationship with customers

� Identify customers

� Problems with customers that could lead to liability of

acquirer?

� Non-compliance with code of conduct provided by

customers?

DD OF A MANUFACTURER

� Ownership of machines?

� Labour disputes? Employment of minors?

� Factories and General Labour Laws Inspection Department

investigations?investigations?

� Litigation or arbitration?

� Loans?

� Security for loans?

� Environmental issues?

� Trademark infringements?

DD OF A MANUFACTURER

� Compliance with tax and customs regime of CMP

manufacturer

� Tax evasion?

TELCO TOWER COMPANY

� Main issue: many lease agreements not registered

� Change of control requires prior written approval of the

Post and Telecommunications DepartmentPost and Telecommunications Department

LOCAL BUYING FOREIGN BUSINESS

� Locals are allowed to buy shares in overseas companies

� Locals need permission from the Central Bank when

opening a bank account abroad and must submit monthly

financial statements - also if the bank account is held by financial statements - also if the bank account is held by

the overseas company that the local has invested in?

� How to transfer the money abroad to the sellers?

CONTACT

Lincoln Legal Services (Myanmar) Ltd.

La Pyi Wun Plaza, Room 409 (4th Floor),

37, Alan Pya Pagoda Road, Dagon Township,

Yangon, MyanmarYangon, Myanmar

Phone: +95-9-262546284

E-mail: info@lincolnmyanmar.com

Homepage: www.lincolnmyanmar.com